Zero Percent Credit Card Transfer Checks

Yet another client came in bamboozled by their credit situation.  Recently, they used a handful of checks they got from various credit card companies to transfer their balances to cards where they will have 0% interest for a full year, 18 months, or whatever.

In fact, by parlaying around a few different cards they got their entire amount of credit card debt onto 0% payment plans.  Smart?

Well, maybe.  You see, 99.9% of those 0% balance transfer checks come with a transaction fee.  It isn’t anywhere prominent, so you have to look for it.  Down there in the fine print you’ll see the line, “Checks are subject to a 3% transaction fee or $25 whichever is higher.”

That means that if you took a $6,000 balance, an $8,000 balance, and a $5,000 balance and switched them around to get 0% on all of them, you paid $570 in transaction fees.   Now, if you are having some issues and you intend to take advantage of the year of 0% interest to make some smart moves in your finances, this just might work out in the long run.  A lot of that math depends on your interest rate.  If you got good cards in the first place, your rate of 9.9% or 12.1% won’t make this add up in your favor as fast.

However, the biggest catch is the other fine print down at the bottom.  It says that all of your payments will go to the lowest rate balance first.  In other words, if you put $5,000 on the card at 0% interest, and then you charge $300 you will owe interest on the $300.  If you send in $300, it won’t help because, the $300 payment will be credited to your lowest interest balance which is the 0% part.  So, after your payment you have $4,700 at 0% and $300 at 13% (or whatever).  Now, the worst part is that you will pay 13% on that $300 until you have paid off every penny of the 0% balance.  That is NOT a good deal.

How to Use 0% Interest Offers

If you are going to use a 0% interest offer, you must NOT USE that credit card again until your balance transfer is paid off.  In other words, you need another card that will be your regular card that you make charges on and pay off each month.  Otherwise, you will just get killed in the end.  Why do you think credit card companies are always making these offers?  Do you actually think that they would do something that loses them money like giving you money interest free for 12 months or longer?

You can still win, but you must be smart.  Use your 0% offer and then put that card away in your lock box until it is completely paid off.  Otherwise, you are just throwing money down the toilet and feeling good while you do it.